Federated Farmers Sharemilkers' and the Sharemilker Employers' sections have launched a DairyNZ funded report investigating pathways from dairy farm employee through to full farm ownership.
The document, "Ensuring a viable progression path in the dairy industry", looks at the industry's many different career paths.
Traditionally ownership was via sharemilking, with sharemilkers working the owner's land and looking after farmers' cows for a share in the profits.
These Variable (or Lower) Order Sharemilkers learn the business, save money, rear calves for themselves and gradually build up their own herd to progress to Herd Owning or 50:50 sharemilkers. These tend their own cows on another farmer's land who shares in the profits. After building up capital, they can buy their own farms and farm in their own right.
This system has seen some changes lately with more contract milkers being employed, mainly due to the volatile milk price which also feeds into land and cow prices. In this arrangement farm owners pay contractors based on the kilograms of milk solids sold to processors. There has also been an increase in equity partnerships, where parties join forces to buy land and cows, sharing the profits and risks.
There is no substitute for both parties getting good independent advice and doing due diligence on the other party's business, attitude and ability, before signing on the dotted line. Younger and progressing farmers are advised to make use of mentors and rural professionals in finding the right fit for their business. Investing in these skills will benefit those at the beginning of their careers.
While the report found little change to the number of Variable Order Sharemilkers, it did find fewer sharemilkers progressed to becoming Herd Owning sharemilkers, especially in the South Island where there appears to be a bottle neck. Reasons could be higher debt levels on farm, more corporate farm ownership and it being more profitable during volatile times for farm owners to engage a Variable Order Sharemilker or a contract milker.
For those farmers needing to make a decision on 'where to next', the report provides two decision support trees. The first asks farmers starting their career to decide how much money they have access to and what risk they want to carry. This leads to the operating structure they can aim for, be it equity partnership, sharemilking, contract milking, managing, leasing or full farm ownership.
The second decision support tree is for farm owners deciding on their own business structure based on how much day-to-day involvement they want in running their farm, how much of their own capital they want to use and the amount of risk they want to share.
The report shows the contracts developed by Federated Farmers are good. The Variable Order Sharemilking Agreement is bound by legislation, so must not be altered to be less favourable for the sharemilkers than specified in the Sharemilking Agreements Act 1937 and its 2011 Order.
The Herd Owning Sharemilking Agreement is, however, well able to be adjusted to suit both parties after negotiation. This is where they can work together to get the incentives for both sides right. Large corporate enterprises may not want a Herd Owning sharemilker bringing cows on to the property, due to variables such as production and breeding worth. Other arrangements such as leasing out the cows for the duration of the contract, however, can be made. Likewise, looking how expenses could be shared may make a Herd Owning sharemilking position more attractive to farm owners.
Federated Farmers' Contract for Contract Milking prompts both parties to ask questions such as, the amount of pasture cover required and the use of supplements. Both parties should be satisfied Inland Revenue Department rules around 'independent contractors' are adhered to.
"Ensuring a viable progression path in the dairy industry" is available from Federated Farmers and AgFirst.